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on Corporate Finance |
| By: | Bakr Al-Gamrh (ESC [Rennes] - ESC Rennes School of Business); Umar Farooq; Tanveer Ahsan (RTO - Rethinking Tomorrow’s Organisation - Rennes School of Business - ESC [Rennes] - ESC Rennes School of Business) |
| Abstract: | This study investigates the relationships between economic uncertainty (EU), corporate governance (CG), and the cost of debt (COD). Using an index-based measure of CG, this study investigates how CG influences debtholders' perspectives during periods of EU. The study utilizes a dataset of nonfinancial firms listed in European countries from 2013 to 2021. We find that EU and COD are positively associated, indicating that EU increases the COD of European firms. Second, while CG has an insignificant direct impact on COD, it has a significant negative moderating impact on the relationship between EU and COD, suggesting that although a strong CG system may not have a significant direct impact on COD, it has the potential to reduce the uncertainty-induced COD of European firms. The results remain consistent with alternative proxies of COD and CG, as well as before and after the COVID-19 period. The results for CG subindices suggest that shareholder rights and compensation serve as reliable indicators for debtholders during periods of EU, while audit quality and board structure do not play any significant role in reducing uncertainty-induced COD. Our findings emphasize the key role that effective CG plays in mitigating EU's adverse effects on COD. Our results are robust to endogeneity issues such as reverse causality and selection bias, as well as to external factors like time and industry effects. |
| Keywords: | Economy, Europe, Debt, Corporate Governance, Economic uncertainty Corporate governance Cost of debt Europe |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04727168 |
| By: | G. Atzeni; L. Deidda; P. Arca |
| Abstract: | Using the BEEPS dataset on Eastern European and Central Asian firms, we investigate how the collateral requirements and the cost of credit expected by firms might discourage them from applying for credit. Based on the data we identify four reported discouragement reasons - (A) high probability of rejection, (B) high cost of credit, (C) high cost of application, (D) and other reasons. We develop a simple statistical model to derive the following set of predictions about the impact of expected collateral requirements and cost of credit on discouragement. First, collateral requirements and cost of credit should induce discouragement across all reported reasons. Second, higher expected collateral requirements and cost of credit should have a lower effect when the reported reason is (A). If the firm already fears rejection, a higher collateral requirement or a higher cost of credit should play little role. Third, collateral requirements should have a larger impact when the reported reason is (B). If the firm is discouraged by the high cost of credit rather than the fear of rejection, an increase in the expected collateral requirements becomes more significant as it may add the risk of rejection as an additional concern for the firm. We test these predictions using a multinomial logit model and we find robust evidence that supports all of them. |
| Keywords: | multinomial logit;loans to collateral value;discouraged;denied;Credit rationing;cost of application |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:cns:cnscwp:202417 |
| By: | Giovanazzi, Carmen; Victor, Vincent; Putscher, Dorothee |
| Abstract: | We examine the dynamics of corporate investment in Germany during the 2000s, a period marked by stagnant macroeconomic investment spending. Employing a mixed-methods approach, we explore investment trends across national accounts data, firm-level financials, and responses from financial executives through our financial strategy survey. We show that while tangible investment remains the most important investment category, both macroeconomic and firm-level data indicate a decline. This decrease is offset by rising intangible investment, reflecting the emergence of the intangible economy. Despite this shift, investment has lagged behind rising corporate saving, leading to an increased net lending position. Often interpreted as corporate financialization, we find only moderate and partial evidence to support this view from a firm-level perspective. Additionally, while we find an increasing importance of M&A at the firm level, this development is not fully captured in the national accounts due to missing goodwill data. Our results underscore the necessity of multifaceted analysis in understanding investment dynamics. |
| Keywords: | CFO Survey, Intangible Economy, Investment Strategy, Germany, M&A, Mixed Methods, Financialization |
| JEL: | C83 D22 E01 E22 G3 L2 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifsowp:305260 |